In response to an FT article by Tim Harford on 21st August 2014, entitled 'Why inflation remains best way to avoid stagnation'
"If secular stagnation is a real risk, we need policies to address it...There is a simple alternative, albeit one that carries risks. Central bank targets for inflation should be raised to 4 per cent. A credible higher inflation target would provide immediate stimulus (who wants to squirrel away money that is eroding at 4 per cent a year?) and would give central banks more leeway to cut real rates in future"
Central Bankers have got such a good track record of controlling inflation, it's a wonder they didn't think of this for themselves!
No wait, they already did! Inflation for poor people is already 4%, what with all those pesky 'cost of living' increases that still exist for them. If only poor Mrs Jones knew about clever things like 'substitution', she could tell little Johnny that he can't have beef burgers this week because in order to get the most benefit from the inflation figures, he's got to eat chicken nuggets instead. Actually it's a disgrace that deadbeat Mrs Jones isn't taking time to study the inflation tables, in between her two part-time jobs. She could also do more to check out the local price comparison website.
Never mind, if only she gets a third job she'll be able to afford an iPad and then she'll have low inflation too! She'll also be able to afford a new car, and get even more benefit from low inflation! Yes, thanks to some very clever people in the Department of Hedonics (or is it Hubristics?) she can benefit from the reduced inflation that comes with an extra airbag - the car costs slightly more, but hey, that value adding airbag is one hell of a deflator! And who knew...the airbag also comes with a free pun!
I think we may have some trouble persuading Mrs Jones that 2% doesn't feel remarkably like 4% already, and that given the wonderful track record of Central Banks, 4% will feel just like 10% did in the eighties. Speaking of that wonderful track record, have you heard my latest joke…what's the difference between the Fed and the Meteorological Society? They both get their forecasts wrong 90% of the time but only one of them blames the weather.
I think we can all admit that there are a lot of reasons Central Banks want inflation, but can we acknowledge that they don't want Mrs Jones to know about some of these? Here's a few things Mrs Jones never hears from Mr Carney, and Mrs Smith never hears from Janet Yellen:
They don't want Mrs Jones to know that inflation is a great way for governments to pay back less than they borrowed - Mrs Jones might think that was a bit like borrowing £10 from your Dad, spending it on booze and then not paying him back; she's been told all her life that this is dishonest, not to mention dangerous.
They don't want Mrs Smith to know that the rich people get the new money first, and they get to buy things before the price has gone up, because she might start to suspect that inflation is a wealth transfer from the her to rich people. She might figure out that she'll never afford an iPad because she's already buying one for someone else.
Poor Mrs Smith and Jones! Kept in the dark. Never mind, they're the lucky ones. Their Dads will be retiring in a few year's time, and they haven't got a clue that some of the money in their pension schemes has been transferred into junk bonds because the fund manager thought he might lose his job if he didn't get a better yield. But let's not get too worked up about all this! Dads Smith and Jones will never find out, and even if they do, no-one will ever be able to trace it back to the policies of the Central Banks.
I'm not an economist, I run a business. I do not have all the answers, but I have a very good nose for BS, and I can tell when I'm being lied to. The Central Banks are lying to themselves and lying to us. They haven't got a clue what they are doing.
I think the market is going to clear out this mess with a huge crash, and a global reset. If I'm wrong, great, but show me the money! If I'm right, I hope that this crop of Central Bankers will have the humility to say they got it totally wrong and make way for people with new ideas, or maybe old ideas - we didn't always print toilet paper and call it money.